How to Win at Multiple Bids in this Competitive Housing Market
The spring market is upon us, that time of year when homebuyers come out in force to shop with the goal of being in a new home before the start of the school year in September.
You’ve looked at towns, you’ve picked the one that speaks to you, and you start to look at houses in earnest. You find a few beautiful homes that you can’t wait to see, but when you call about getting an appointment, the house is already under contract. So you go to open houses, and you find something perfect! You decide to make an offer -- and then you hear that there are multiple offers, and a “best and final” process the next day. No time to think about your offer, and no chance to negotiate.
After going through three rounds of offers on three multiple-bid houses, and losing out each time, you throw your hands up in the air, totally dejected and wonder if you’ll ever get a home.
If you’re looking at many of the towns within commuting distance of New York City -- Maplewood and Montclair, Glen Ridge, Summit, Short Hills, Chatham, and towns in Westchester, this is probably not news to you.
Here are steps you can take to help you improve your chances of winning the house you (and lots of other people) want.
Make sure your credit is clean.
Well before you want to make an offer on a house, clean up any issues with your credit report, old paid off tax liens, reporting mistakes, etc. and pay down credit card debt so that you’ll be able to qualify for the best mortgage possible at the lowest rates, to give you more buying power.
Find an experienced agent to support you.
Shop around for someone whom you feel confident with and trust. What you need is an agent who knows how to navigate the dynamics of this crazy market, and who is responsive to you. How active are they in the market you’ve chosen? Do they return your calls quickly? Do they understand what you want? Will they serve as a scout for you?
The best agents will conduct a buyers’ consultation with you, not just show you houses. This gives you both the opportunity to create a game plan for your home search and purchase, and also for the agent to get to know what works for you, so that they can do much of the legwork and screening for you, to save you time and make sure you see new listings as quickly as possible.
Agents work the hardest for clients that work closely with them, so find someone you really like to partner with you on this journey
Get Pre-approved for a mortgage.
No offer will be accepted without a mortgage pre-approval these days. A pre-approval takes a few days, so if you don’t have one at the outset and wait until you find the house, it will likely be gone before you have a chance to make an offer.
Your agent can help direct you to good mortgage brokers. A mortgage broker with a strong reputation is a great resource. They can usually get you the best mortgage options and work faster than most large banks.
Understand how pricing works in your market.
In markets where new listing inventory is low and demand is high, it is common for houses to sell significantly over asking price. Consider looking at properties below your price range by as much as $75,000-$100,000, in order to give you wiggle room to match competing offers in a multi-bid situation. Each market is a little different, so let your agent be your guide.
Put yourself in a strong cash position for a purchase
Cash is king and sellers love cash. The more cash you can put down as a down payment, the more attractive you are as a buyer. If you bring a high offer, with a large cash down payment the sellers don’t need to worry about whether a house appraises for the full offer amount.
All-cash offers are the best, of course. (You will need to provide proof of funds along with the offer.) They eliminate the need for a mortgage approval and appraisal process, and a faster closing date, if that’s what both parties want.
If you have the cash to do this, you can still get a mortgage. This simply means that the mortgage approval process doesn’t become a factor in the purchase. So, if for some reason, you don’t get approved for the mortgage, the purchase still goes through.
Limit or eliminate contract contingencies.
Keep in mind, the sellers’ goal is to get to the closing table with as little uncertainty as possible. In these competitive markets, you are giving yourself an advantage by removing any issue up front that raises the specter of a deal falling apart down the road.
One of the big red flags for sellers is a home sale contingency, that is, the buyer is making an offer based on them selling their current home. If this is a necessity for you, try to be “under contract” on your current home before making any offer. But remember, if your home sale falls through, your home purchase will also fall through, which is a tough position to be in when you’re competing against other offers.
Limit inspection demands up front. A good agent will always push for an inspection, so that you know exactly what you’re getting, but there are ways to make this less stressful for the seller. Sellers are very leery about buyers “nickel and diming” them over minor issues or trying to recover some of the money they have offered through expensive demands. Agree to do an inspection as quickly as possible and limit inspection demands to repairs or credits for major mechanical, environmental and structural issues only. This still covers you on any big hidden issues, like a cracked foundation, asbestos in the basement or a buried oil tank. Your agent can recommend other inspection strategies, such as putting a floor on needed repairs, e.g. you will be responsible for the first $2000 for repairs, etc.
Ok, this is sacry. Many buyers are waiving the appraisal contingency in their mortgage. This means that if the house does not appraise for the amount you have offered the seller, then it will be your responsibility to come up with the needed cash at the closing table.
What does this mean? Once you apply for a mortgage, the lender will conduct an appraisal of the house. They will only give you a mortgage commensurate with the appraised value. This is to protect the lender from exuberant offers. Most offers have a contingency that if the offered price exceeds the appraised value, the buyer can cancel or renegotiate the price. This is obviously a concern to sellers. One way around this is to agree to make up the difference in cash so that the appraisal becomes irrelevant to the seller.
In order for this to work for you, you have to have the extra cash on hand, so keep that in mind before going with this strategy.
Be flexible on Closing Date.
Try to have a date that lines up with what the seller wants. Sellers don’t always go with the highest offer – they often go with the offer that best meets their needs and gives them the greatest confidence that they will have as stress-free a sale process as possible.
Write a winning letter to the sellers.
People underestimate the emotions and sentiment involved in selling a home. Anything you can do to foster an emotional attachment between you and the seller will work in your favor. A lovely letter describing something in the home that drew you in, photos of your family and mention of the lovely backyard swing or patio where you picture summer cookouts, really do make a difference.
Know where you will make tradeoffs.
You may not be able to get exactly what you want, so what compromises are you willing to make? Will you live on a busier street for an extra bathroom? The house that you think is perfect is also perfect to other buyers, so the chances of competition will increase. Knowing what concessions you can handle will increase your chances of getting into a less competitive situation.
Be Prepared for Disappointment.
As hard as this is, don’t get too attached to a house until you are under contract. Losing a “best and final” process can be heartbreaking, but it’s not uncommon. All of the above steps can give you an advantage, but it only takes one crazy offer to blow it all out of the water. You may find yourselves going through this process on several homes before you get one, but your agent will help increase your odds to get you want you want.
Once you become familiar with the market and the process, and you have a great agent in your corner guiding you through, you will be in a strong position to get a wonderful new home.